Insurance brokerage Arthur J. Gallagher & Co. said on Friday it will pay $36.9 million to settle a class-action lawsuit accusing it of accepting improper “contingent commissions” for steering business to particular insurers. On the same day MetLife Inc., the largest U.S. life insurer, said it agreed to pay $19 million to settle an investigation by New York State Attorney General Eliot Spitzer into fees paid to insurance brokers.
The Gallagher settlement includes payments of $28 million to current and former clients who used brokers to buy insurance from 1994 to 2005, as well as $8.85 million of legal fees. Gallagher did not admit wrongdoing, but said it settled the two-year-old lawsuit to avoid the costs and burdens of litigation. The complaint accused the firm of conspiring to steer business to insurers that paid hidden fees, rather than those offering the best coverage, Gallagher has said in regulatory filings. The settlement still requires approval by the U.S. District Court in New Jersey.
The MetLife settlement, likely Spitzer’s last as attorney general (he took office as New York governor on January 1), involves the payment of $16.5 million to policyholders and $2.5 million of civil penalties.
The firm admitted no liability, but agreed to stop paying so-called “contingent commissions” to insurance brokers for life, disability and other group products, and to change other business practices. Spitzer and others have said such commissions amount to kickbacks, and result in brokers getting worse prices for companies seeking insurance (see Spitzer Takes On Contingent Commissions ).